SCENARIO ANALYSIS OF RENEWABLE ENERGY ...

INTERNATIONAL DESIGN CONFERENCE Dubrovnik

SCENARIO ANALYSIS OFBUSINESSES: A CASE SBIOMASS IN A JAPANES

Y. Kishita

Keywords: woody biomass

1. IntroductionWith the aim to realize a lowsources, such as solar, wind, and woody biomass, ttariff (FIT) schemes for increasing electricity generation from renewable energy. For example, in Germany, the FIT scheme increased the cumulative photovoltaic (PV) capacity up to 32.6 GW as of 2012, which aIndustry Association 2013]. While the diffusion of renewable energy contributes to reducing COemissions, economic sustainability must be satisfied to make renewable enlong run (governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a small change in the business enviroenergy business refers to economic activities where various actors (government, and noninformation that are associated with renewable energy.When attempting to design sustainable renewable energy businesses, one critical problem is that there are many unpredictable factors that(e.g., FIT schemes and nuclear power policies),technological advancements. In the domain of engineering design, one of emerging research topics for enhancing sustainability would be the design ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into accountThis paper takes a By undertaking scenario analysis with the simulation (we aim to clarify conditions for sustainable renewable energy businesses anthat might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda case study, we focus on a communitypotential tothe local The remaining part of the paper is structured as follows. Section 2 mentions status of businessSection 5 gives discussions based on the case study results.

INTERNATIONAL DESIGN CONFERENCE Dubrovnik - Croatia, May 19


Kishita, N. Nakatsuka, Y

Keywords: scenario analysiswoody biomass, rural community

1. Introduction With the aim to realize a lowsources, such as solar, wind, and woody biomass, ttariff (FIT) schemes for increasing electricity generation from renewable energy. For example, in Germany, the FIT scheme increased the cumulative photovoltaic (PV) capacity up to 32.6 GW as of 2012, which accounts for 32% of the total installation in the world (102 GW) [European Photovoltaic Industry Association 2013]. While the diffusion of renewable energy contributes to reducing COemissions, economic sustainability must be satisfied to make renewable enlong run (e.g., 10-governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a small change in the business enviroenergy business refers to economic activities where various actors (government, and noninformation that are associated with renewable energy.When attempting to design sustainable renewable energy businesses, one critical problem is that there are many unpredictable factors that

., FIT schemes and nuclear power policies),technological advancements. In the domain of engineering design, one of emerging research topics for enhancing sustainability would be the design ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into accountThis paper takes a simulationBy undertaking scenario analysis with the simulation (we aim to clarify conditions for sustainable renewable energy businesses anthat might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda case study, we focus on a community in Okayama Prefecturepotential to reduce CO

local economy of The remaining part of the paper is structured as follows. Section 2 mentions status of renewable energy businessbusinesses. Section 4 Section 5 gives discussions based on the case study results.

INTERNATIONAL DESIGN CONFERENCE Croatia, May 19 - 22, 2014.


Nakatsuka, Y. Fuchigami

cenario analysis, rural community

With the aim to realize a low-sources, such as solar, wind, and woody biomass, ttariff (FIT) schemes for increasing electricity generation from renewable energy. For example, in Germany, the FIT scheme increased the cumulative photovoltaic (PV) capacity up to 32.6 GW as of

ccounts for 32% of the total installation in the world (102 GW) [European Photovoltaic Industry Association 2013]. While the diffusion of renewable energy contributes to reducing COemissions, economic sustainability must be satisfied to make renewable en

-20 years). In other words, renewable energy businesses relying solely on governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a small change in the business enviroenergy business refers to economic activities where various actors (government, and non-governmental organization (NGO)) exchange materials, energy, money, aninformation that are associated with renewable energy.When attempting to design sustainable renewable energy businesses, one critical problem is that there are many unpredictable factors that

., FIT schemes and nuclear power policies),technological advancements. In the domain of engineering design, one of emerging research topics for enhancing sustainability would be the design ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into account

simulation-based approach to designing sustainable renewable energy businesses. By undertaking scenario analysis with the simulation (we aim to clarify conditions for sustainable renewable energy businesses anthat might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda case study, we focus on a woo

in Okayama PrefectureCO2 emission for tackling global climate change problems as well as

economy of the communitThe remaining part of the paper is structured as follows. Section 2 mentions

renewable energy businession 4 illustrates a case

Section 5 gives discussions based on the case study results.

INTERNATIONAL DESIGN CONFERENCE - DESIGN 2022, 2014.

SCENARIO ANALYSIS OF RENEWABLE ENERGY BUSINESSES: A CASE STUDY OF WOODY BIOMASS IN A JAPANESE RURAL COMMUNITY

Fuchigami and

, energy business, renewable energy, rural community

-carbon society, more attention is being paid to renewable energy sources, such as solar, wind, and woody biomass, ttariff (FIT) schemes for increasing electricity generation from renewable energy. For example, in Germany, the FIT scheme increased the cumulative photovoltaic (PV) capacity up to 32.6 GW as of


20 years). In other words, renewable energy businesses relying solely on governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a small change in the business environment may lead to their bankruptcy. In this paper, a renewable energy business refers to economic activities where various actors (

governmental organization (NGO)) exchange materials, energy, money, aninformation that are associated with renewable energy.When attempting to design sustainable renewable energy businesses, one critical problem is that there are many unpredictable factors that may drive or inhibit the business, such as national energy po

., FIT schemes and nuclear power policies),technological advancements. In the domain of engineering design, one of emerging research topics for enhancing sustainability would be the design ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into account

based approach to designing sustainable renewable energy businesses. By undertaking scenario analysis with the simulation (we aim to clarify conditions for sustainable renewable energy businesses anthat might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda

woody biomassin Okayama Prefecture, Japan. This is because

emission for tackling global climate change problems as well as community.

The remaining part of the paper is structured as follows. Section 2 mentions renewable energy businesses. Section 3 describes

illustrates a case study of the Section 5 gives discussions based on the case study results.

DESIGN 2014

RENEWABLE ENERGY TUDY OF WOODY

E RURAL COMMUNITY

and F. Akamatsu

energy business, renewable energy,

carbon society, more attention is being paid to renewable energy sources, such as solar, wind, and woody biomass, than ever. Some countries have introduced feedtariff (FIT) schemes for increasing electricity generation from renewable energy. For example, in Germany, the FIT scheme increased the cumulative photovoltaic (PV) capacity up to 32.6 GW as of


20 years). In other words, renewable energy businesses relying solely on governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a

nment may lead to their bankruptcy. In this paper, a renewable energy business refers to economic activities where various actors (

governmental organization (NGO)) exchange materials, energy, money, aninformation that are associated with renewable energy. When attempting to design sustainable renewable energy businesses, one critical problem is that there

drive or inhibit the business, such as national energy po., FIT schemes and nuclear power policies), consumers

technological advancements. In the domain of engineering design, one of emerging research topics for enhancing sustainability would be the design of sustainable renewable energy businesses, which ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into account

based approach to designing sustainable renewable energy businesses. By undertaking scenario analysis with the simulation (i.ewe aim to clarify conditions for sustainable renewable energy businesses anthat might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda

dy biomass energy business. This is because

emission for tackling global climate change problems as well as

The remaining part of the paper is structured as follows. Section 2 mentions Section 3 describes study of the woody

Section 5 gives discussions based on the case study results.

14

RENEWABLE ENERGY TUDY OF WOODY

E RURAL COMMUNITY

Akamatsu


carbon society, more attention is being paid to renewable energy han ever. Some countries have introduced feed

tariff (FIT) schemes for increasing electricity generation from renewable energy. For example, in Germany, the FIT scheme increased the cumulative photovoltaic (PV) capacity up to 32.6 GW as of



nment may lead to their bankruptcy. In this paper, a renewable energy business refers to economic activities where various actors (e.g.

governmental organization (NGO)) exchange materials, energy, money, an

When attempting to design sustainable renewable energy businesses, one critical problem is that there drive or inhibit the business, such as national energy po

consumers’ lifestyles, global economic situations, and technological advancements. In the domain of engineering design, one of emerging research topics for

of sustainable renewable energy businesses, which ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into account

based approach to designing sustainable renewable energy businesses. i.e., changing assumptions of the simulation),

we aim to clarify conditions for sustainable renewable energy businesses anthat might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda

energy business in Maniwa City, which is a rural . This is because such a biomass


The remaining part of the paper is structured as follows. Section 2 mentions Section 3 describes a method for modeling renewable energy

woody biomass energy business in Section 5 gives discussions based on the case study results. Finally, Section

RENEWABLE ENERGY

E RURAL COMMUNITY




ccounts for 32% of the total installation in the world (102 GW) [European Photovoltaic Industry Association 2013]. While the diffusion of renewable energy contributes to reducing COemissions, economic sustainability must be satisfied to make renewable energy businesses feasible in a


nment may lead to their bankruptcy. In this paper, a renewable e.g., business provider, consumer,

governmental organization (NGO)) exchange materials, energy, money, an


lifestyles, global economic situations, and technological advancements. In the domain of engineering design, one of emerging research topics for

of sustainable renewable energy businesses, which ensure economic feasibility and less environmental impacts compared with conventional businesses, by taking not only technological components but social aspects into account.

based approach to designing sustainable renewable energy businesses. ., changing assumptions of the simulation),

we aim to clarify conditions for sustainable renewable energy businesses and to extract key factors that might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda

in Maniwa City, which is a rural biomass energy business has a large


The remaining part of the paper is structured as follows. Section 2 mentions a method for modeling renewable energy biomass energy business in

Finally, Section 6 concludes the paper.



ccounts for 32% of the total installation in the world (102 GW) [European Photovoltaic Industry Association 2013]. While the diffusion of renewable energy contributes to reducing CO

ergy businesses feasible in a 20 years). In other words, renewable energy businesses relying solely on

governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a nment may lead to their bankruptcy. In this paper, a renewable

, business provider, consumer, governmental organization (NGO)) exchange materials, energy, money, an



of sustainable renewable energy businesses, which ensure economic feasibility and less environmental impacts compared with conventional businesses,


d to extract key factors that might affect the economic feasibility of the businesses. For this purpose, we propose a method for modeling renewable energy businesses based on the life cycle simulation [Umeda et al. 2000]. In a

in Maniwa City, which is a rural energy business has a large

emission for tackling global climate change problems as well as to

The remaining part of the paper is structured as follows. Section 2 mentions the Japanese current a method for modeling renewable energy biomass energy business in Maniwa City

concludes the paper.

carbon society, more attention is being paid to renewable energy han ever. Some countries have introduced feed-in


ccounts for 32% of the total installation in the world (102 GW) [European Photovoltaic Industry Association 2013]. While the diffusion of renewable energy contributes to reducing CO2

ergy businesses feasible in a 20 years). In other words, renewable energy businesses relying solely on

governmental subsidies or the FIT scheme are not necessarily considered sustainable because even a nment may lead to their bankruptcy. In this paper, a renewable

, business provider, consumer, governmental organization (NGO)) exchange materials, energy, money, and

When attempting to design sustainable renewable energy businesses, one critical problem is that there drive or inhibit the business, such as national energy policies


of sustainable renewable energy businesses, which ensure economic feasibility and less environmental impacts compared with conventional businesses,


d to extract key factors that might affect the economic feasibility of the businesses. For this purpose, we propose a method for

2000]. In a in Maniwa City, which is a rural

energy business has a large to promote

Japanese current a method for modeling renewable energy

Maniwa City. concludes the paper.

SOCIOTECHNICAL ISSUES IN DESIGN 679

2. Current status of renewable energy businesses

2.1 Japanese current situations of renewable energy businesses Since the Great East Japan Earthquake on the 11th of March, 2011 and the Fukushima nuclear power plant accident as the aftermath, national energy policies have been actively discussed across the world with a particular emphasis on nuclear power. In Japan, post-Fukushima energy policies have been discussed as well, during which the Japanese government presented several scenarios of nuclear power reduction [McLellan et al. 2013]. For reducing both nuclear shares in the Japanese electric power supply and CO2 emission, the Japanese government enacted the law regarding feed-in tariff (FIT) in July of 2012 [METI 2013]. The law says that, for example, the electricity generated from photovoltaic (PV) systems of households, which are mostly installed on the rooftop, can be sold to the electrical grid at the price of about 38 JPY/kWh, while the grid electricity price in Japan is about 25-26 JPY/kWh as of 2013. As a result, renewable energy businesses are booming in Japan, including large-scale solar power generation and regional biomass energy businesses. Moreover, technology roadmaps describe the advancement of renewable energy technologies in the future, which may accelerate the renewable energy business. For example, the conversion efficiency of PV systems is projected to increase from 16% in 2012 to 25% in 2030 [NEDO 2013].

2.2 Literature review In an effort to design future energy systems, much work has been conducted so far, such as the smart grid project in Europe [European Commission 2011] and renewable electricity generation in the United States [NREL 2012]. However, to the best of our knowledge, few studies have dealt with the design of renewable energy businesses although many researchers proposed methods for designing general sustainable businesses [Kondoh and Mishima 2010], [Boons et al. 2013]. Related to biomass energy businesses, Murphy et al. [2014] conducted the life cycle assessment of forest biomass supply chains in Ireland and Lauri et al. [2014] discussed long-term woody biomass supply. Zhang et al. [2010] mentioned that there are many biomass conversion technologies available, which include gasification [Brown et al. 2009], [Fiorese et al. 2014] and biorefining [Näyhä and Pesonen 2014]. Despite useful studies as shown above, methodologies for designing sustainable renewable energy businesses are insufficient. Moreover, conditions for sustainable biomass energy businesses in terms of economic sustainability have not been discussed enough. One of the most critical problems here is that there are many unpredictable factors surrounding renewable energy businesses in the future, including the FIT scheme, grid electricity price, and initial costs of renewable energy facilities.

3. A method for modeling renewable energy businesses

3.1 Approach In order to help design sustainable renewable energy businesses considering future unpredictable factors, we carry out scenario analysis by taking a simulation-based approach. We employ the concept of the life cycle simulation (LCS) [Umeda et al. 2000], [Kishita et al. 2009] to evaluate various scenarios of renewable energy businesses. LCS is a generalized method to analyze the flow of a material/product, money, and information throughout a product life cycle based on a discrete event simulation technique. In LCS, a process flow is modeled as a network of various process types, such as material production, product assembly, transportation, usage, and disposal. Each process is defined as the formulas of input-output relationships between neighboring processes. LCS evaluates the balance of a product life cycle from both environmental and economic perspectives. When compared to the life cycle assessment (LCA), advantages of LCS include evaluating the dynamic balance of inlet and outlet flows of products over the simulation period. To examine conditions for sustainable renewable energy businesses, we define the procedures for scenario analysis using the concept of LCS in five steps as follows:

1. Setting the problem to be solved (e.g., time frame, region, and evaluation boundary of interest)

680 SOCIOTECHNICAL ISSUES IN DESIGN

2. Constructing causal networks for extracting factors associated with biomass energy businessand under

3. Describing scenarios of renewable energy businesses constructed in Step 2

4. Ewe model the scenario as a process network (see Section 3.2)

5. Undertaking scenario analysisclarify conditions for sustainable energy businesses

3.2 Modeling To evaluate categories of process types as shown in collection/1. We defineneighboring processesfollowing equations:

CategoryMaterial extractionProduction

Collection/DistributionSelling

End-of-life (EOL)

The annual costsprocurement cost), which amount, and Several actors are, in general, involved in a rconsumers, and governments.

Constructing causal networks for extracting factors associated with biomass energy businessand understanding the relationships among themDescribing scenarios of renewable energy businesses constructed in Step 2Evaluating each scenario in terms of profitability we model the scenario as a process network (see Section 3.2) Undertaking scenario analysisclarify conditions for sustainable energy businesses

Modeling renewable energy businesseso evaluate the costs and sales of

categories of process types as shown in collection/distribution, selling, and end

define equationsneighboring processesfollowing equations:

Figure

Category Material extraction

Raw

Production Materials, products, or energy are produced using facilities and technologies.

Collection/ Distribution

Materials or or

Materials, products, or energy are sold from one actor to another.

life Solid wastes are discarded at a certain cost.

annual costs consist of procurement cost), which amount, and annual fixed costs (Several actors are, in general, involved in a rconsumers, and governments.

costs annual

annual

Constructing causal networks for extracting factors associated with biomass energy businessstanding the relationships among them

Describing scenarios of renewable energy businesses constructed in Step 2

valuating each scenario in terms of profitability we model the scenario as a process network (see Section 3.2) Undertaking scenario analysisclarify conditions for sustainable energy businesses

renewable energy businessesthe costs and sales of

categories of process types as shown in distribution, selling, and end

equations for each processneighboring processes. The annual costs and sales in each process

Figure 1. Basic process model

Raw materials are extracted from the earth.

Materials, products, or energy are produced using facilities and technologies.

Materials or products are collected in one place or are distributed from one place to another. Materials, products, or energy are sold from one actor to another.Solid wastes are discarded at a certain cost.

consist of annual procurement cost), which are calculate

fixed costs (e.gSeveral actors are, in general, involved in a rconsumers, and governments. In this paper, w

unit variacosts

unit sales


Describing scenarios of renewable energy businesses

valuating each scenario in terms of profitability we model the scenario as a process network (see Section 3.2) Undertaking scenario analysis by changing assumptions of eash scenario with the aim to clarify conditions for sustainable energy businesses

renewable energy businesses the costs and sales of various scenarios of renewable energy businesses,

categories of process types as shown in distribution, selling, and end-of-life (EOL)

each process type to annual costs and sales in each process

. Basic process model

Table 1. Definition of process typesDefinition

materials are extracted from the earth.


products are collected in one place are distributed from one place to another.

Materials, products, or energy are sold from one actor to another. Solid wastes are discarded at a certain cost.

annual variable costs (calculated by multiplying unit variable costs by annuale.g., initial and maintenance costs of facilities and labor cost).

Several actors are, in general, involved in a rn this paper, w

cost bleunit varia

annualpriceunit


Describing scenarios of renewable energy businesses

valuating each scenario in terms of profitability we model the scenario as a process network (see Section 3.2)

by changing assumptions of eash scenario with the aim to clarify conditions for sustainable energy businesses

various scenarios of renewable energy businesses,

categories of process types as shown in Table life (EOL). The basic proceto represent the relationship

annual costs and sales in each process

. Basic process model [updat

Definition of process typesDefinition

materials are extracted from the earth.



Materials, products, or energy are sold from one

Solid wastes are discarded at a certain cost.

variable costs (e.g.by multiplying unit variable costs by annual

., initial and maintenance costs of facilities and labor cost). Several actors are, in general, involved in a renewable energy business, such as business providers,

n this paper, we evaluate the annual profit of business providers over

processed annual

amount sold annual

Constructing causal networks for extracting factors associated with biomass energy business

Describing scenarios of renewable energy businesses based on

valuating each scenario in terms of profitability based on of the concept of LCSwe model the scenario as a process network (see Section 3.2)

by changing assumptions of eash scenario with the aim to clarify conditions for sustainable energy businesses

various scenarios of renewable energy businesses, Table 1 – material extraction, production, . The basic proce

represent the relationship annual costs and sales in each process type

updated from Moriguchi 1999]

Definition of process typesProcess type defined in the case study

materials are extracted from the earth. Wood extraction

Materials, products, or energy are produced Laminated timber production, chipping, pelletizing, energy conversion


Collection, ltransportation

Materials, products, or energy are sold from one Selling

Solid wastes are discarded at a certain cost. Disposal

e.g., utilities cost, transportation cost, and by multiplying unit variable costs by annual

., initial and maintenance costs of facilities and labor cost). enewable energy business, such as business providers, e evaluate the annual profit of business providers over

amount processed

amount


based on the causal networks

of the concept of LCSwe model the scenario as a process network (see Section 3.2)

by changing assumptions of eash scenario with the aim to

various scenarios of renewable energy businesses, material extraction, production,

. The basic process model is illustrated in represent the relationship of inlet and outlet flows between

type are commonly calculated by the

ed from Moriguchi 1999]

Definition of process types Process type defined in the case study

Wood extraction

Laminated timber production, chipping, pelletizing, energy conversion Collection, land transportationtransportation, export, importSelling

Disposal

, utilities cost, transportation cost, and by multiplying unit variable costs by annual


annualamount


the causal networks

of the concept of LCS, by which


various scenarios of renewable energy businesses, we define five material extraction, production,

ss model is illustrated in let and outlet flows between

are commonly calculated by the

ed from Moriguchi 1999]

Process type defined in the case study

Laminated timber production, chipping, pelletizing, energy

and transportation, export, import

, utilities cost, transportation cost, and by multiplying unit variable costs by annual processed


cost fixed

Constructing causal networks for extracting factors associated with biomass energy businesses

the causal networks

, by which


e define five material extraction, production,

ss model is illustrated in Figure let and outlet flows between

are commonly calculated by the

(1)

(2)

Process type defined in the case study

Laminated timber production,

and transportation, marine

, utilities cost, transportation cost, and processed



the simulation period in order to analyze the economic feasibility of the business. The annual profit is calculated by subtracting the total costs from the total sales of the business for every year. In the case study, we define 12 process types described in Table 1 for evaluating scenarios of woody biomass energy businesses.

4. A case study of biomass energy business in Maniwa City, Okayama, Japan

4.1 Problem settings We carried out a case study of the woody biomass energy business in Maniwa City, Okayama Prefecture, Japan, of which the population and the area are 47,096 and 828.4 km2, respectively. The city is a typical rural community with 79% of the whole area being occupied by forests. The economy is mainly led by forestry industry, where about 30 timber mills are currently running business by manufacturing wooden products including laminated timber. The purpose of the case study is to analyze conditions for economic sustainability of the woody biomass energy business. The period covered ranges from 2013 to 2032 (i.e., 20 years, specified in the current FIT scheme in Japan). In the business, we assumed that woody biomass is converted to two types of energy – “wood pellet,” which is used as a fuel to supply hot water, and “electricity.” In particular, the electricity generated from woody biomass can be sold to the electrical grid at the price of 25.2-33.6 JPY/kWh based on the current FIT scheme, which is about 1-1.3 times higher than the grid electricity price [METI 2013].

4.2 Constructing a causal network Figure 2 describes a part of the causal network that we constructed regarding the biomass energy business by PEST (political, economic, social, and technological) analysis [O’Brien 2004]. Each link means a causal relationship between two factors. The link types of “positive” and “negative” represent a positive and negative effect from one factor to its descending factors, while “related” represent an undetermined effect in terms of polarity (i.e., positive or negative). The causal network shows a number of factors that will affect the profit of the biomass energy business. For example, the FIT scheme influences Factor (i) “sales of electricity generated from woody biomass,” while it also has a positive impact on (c) “grid electricity prices.”

Figure 2. Causal network of the biomass energy business (not exhaustive)

Fossil fuel prices

Subsidies to purchase facilities

Profit of biomass energy business

Sales of biomass energy business

Nuclear power policy

Currency exchange rate

Performance of facilities

Costs of biomass energy business

Related

PositiveNegative

Global financial situations

Technological advancement

Unit utility cost of facilities

World’s demand of wood

Inflow of wood

(g)

FIT scheme

Sales of electricity generated from woody biomass

(i)

Grid electricity prices

(c)

Labor cost(a)

Initial cost of facilities

(e)

Maintenance cost

(d)

Wood procurement cost

(f)

Sales of wood pellet

(h)

(b)Transportation

cost


a)

b)

Figure 3. Process flows of woody biomass in Maniwa City: a) Conventional Business Scenario, b) Biomass Energy Business Scenario

4.3 Assumed scenarios We described two scenarios for analyzing the profit of the biomass energy business as follows:

Overseas producersWood

extraction

Land transportation

Export

Marine transportation

Import

Land transportation

Wood extraction

Land transportation

Timber mill

Laminated timber production

Land transportation Selling

Primary wood producers

Disposal

Laminated timber

Biomass Business Providers

Domestic producers

Waste disposal company

wood residue

House builders

End-users

Virgin timber

Virgin timber

Overseas producersWood

extraction

Land transportation

Export

Marine transportation

Import

Land transportation

Wood extraction

Land transportation

Timber mill

Laminated timber production


Primary wood producers

Collection

Pelletizing

Chipping

Land transportation

Energy conversion


Selling

Laminated timber

Wooden chip

Wood pellet

Electricity

Biomass Business Providers

Domestic producersCollection base

Electricity producer

Virgin timber

Virgin timber

wood residue

Electrical grid

City office, etc.

House builders

Legend

Process Actor Material flow

End-users

Disposal

Waste disposal companyAsh

Material


(A) Conventional Business Scenario: The wood residues (e.g., shaving and bark, 76 thousand ton/year) from the timber mills are simply discarded in landfill sites.

(B) Biomass Energy Business Scenario: The wood residues from the timber mills are used for producing wood pellets (18 thousand ton/year) and electricity (58 thousand ton/year) that is sent to the electrical grid based on the FIT scheme. In addition, a larger amount of virgin timber (90 thousand ton/year) is collected from domestic wood producers for generating electricity. This is because, according to the Japanese FIT scheme, the electricity generated from domestic virgin timbers can be sold at a higher price (33.6 JPY/kWh) than that from wood residues (25.2 JPY/kWh) [METI 2013]. The difference of the FIT rate for virgin timbers and wood residues comes partly from the difference of their water content. In other words, wood residues contain less water, enabling to produce more electricity than virgin timbers.

Table 2. Collected data used in the case study (not exhaustive) Process type Item Value Unit Remarks

General Labor cost 4.0 million JPY/year

Obtained from the interview with Maniwa City.

Grid electricity price 23.8 JPY/kWh Obtained from the website of Chugoku Electric Power Co., Ltd.

Disposal Disposal cost 6.0 JPY/kg To landfill wood residue in Scenario A. 40.0 JPY/kg To landfill the ash of wood after the energy

conversion process in Scenario B. Annual amount of discarded wood residues

76 thousand ton/year

The amount of the wood residues to be landfilled in Scenario A.

Annual amount of discarded ash

1.48 thousand ton/year

The amount of the ash to be landfilled in Scenario B.

Land transportation

Gasoline price for trucks

134 JPY/liter Obtained from the website of Agency for Natural Resources and Energy, Japan.

Transportation distance

20 km Authors’ assumption.

Collection Wood procurement cost

4.0 JPY/kg Obtained from the interview with Maniwa City.

Annual amount of collected wood for electricity generation


The collected wood is classified into wood residue (58 thousand ton/year) and domestic virgin timber (90 thousand ton/year).

Annual amount of collected wood for pellet


Obtained from the interview with Maniwa City.

Initial cost of the collection base

17.5 million JPY/year

The depreciation period of the collection base is 20 years.

Chipping Initial cost of chipping machines


The maximum amount of wood that is processed in chipping machines is 150 thousand tons a year. The depreciation period of the chipping machines is 8 years.

Maintenance cost of chipping machines


Pelletizing Initial cost of pelletizing machines


The maximum amount of wood that is processed in pelletizing machines is 36 thousand tons a year. The depreciation period of the pelletizing machines is 8 years.

Maintenance cost of pelletizing machines


Material loss in the process

20 wt% Authors’ assumption.

Energy conversion (power

Initial cost of the power generation plant

207 million JPY/year

Obtained from the interview with Maniwa City. The depreciation period of power generation plant is 20 years. Maintenance cost of 124 million


generation) the power generation plant

JPY/year

Power conversion efficiency

17.2 % Authors’ estimation based on the interview with Maniwa City.

Selling Price of wood pellet 20 JPY/kg Obtained from the interview with Maniwa City.

Price of electricity from wood residue to the grid

25.2 JPY/kWh According to the Japan’s FIT scheme [METI 2013].

Price of electricity from virgin timber to the grid

33.6 JPY/kWh

The process flows of the scenarios are illustrated in Figure 3. While we divided the actors involved into three categories, i.e., primary wood producers, biomass business providers, and end-users, the profit of the biomass business providers was evaluated in the case study. The biomass business providers consist of timber mills, collection base, and electricity producer. For the sake of simplicity, we calculated the costs and sales of the processes after the wood residues arise in the “laminated timber production” process since the upstream processes before “laminated timber production” are the same in Scenarios A and B. In Scenario B, the wood pellets are sold to the city office, city pool, hotels, etc., whereas the generated electricity is sent to the electrical grid. To calculate the costs and sales in each process, we collected much data based on interviews with Maniwa City and experts and many literature reviews. A part of the collected data is summarized in Table 2. The first two items (labor cost and grid electricity price) are used for calculating costs in several process types.

4.4 Evaluation results Figure 4 depicts the annual costs and sales in Scenarios A and B. The annual profit of Scenario A is -456 million JPY, which is equivalent to the disposal cost. In contrast, the annual profit of Scenario B is 1,060 million JPY. The annual electricity and pellet sales are 2,100 million JPY and 360 million JPY, respectively. The annual costs of Scenario B amounts to 1,400 million JPY, where the three largest costs are wood procurement cost (26%, 360 million JPY), electricity cost (22%, 310 million JPY), and initial cost (20%, 280 million JPY). On the other hand, disposal cost (4%, 59 million JPY), labor cost (5%, 76 million JPY), maintenance cost (9%, 130 million JPY), and land transportation cost (13%, 190 million JPY) are less significant. Obviously, the electricity sales based on the FIT scheme is the most significant to make it economically feasible to run the biomass energy business in Scenario B. The comparison of Scenarios A and B shows that another strength of the biomass energy business is to save the disposal cost of wood residue, resulting in reducing solid waste to be landfilled.

Figure 4. Annual costs and sales in Scenarios A and B

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4.5 Scenario analysis of the biomass energy business Given there are uncertainties in various factors associated with the biomass energy business, we conducted scenario analysis of Scenario B. Figure 5 shows the result of sensitivity analysis, describing the annual profit when each parameter of (a)-(i) in Figure 2 is increased 10%. The result indicates that less sensitivity is observed in the cost factors (a)-(f) compared with the factors (g) and (i), which are related to the sales of the business. The most critical factors for the economic sustainability of the business are (i) “price of electricity generated from woody biomass” and (g) “inflow of wood for wood pellet and electricity generation.” In other words, the business might be bankrupt if the value of (i) or (g) decreases. Based on the result in Figure 5, we examined the marginal condition of economic feasibility for clarifying conditions for a sustainable business. Figure 6 describes the marginal line of the profit when we changed the values of (g) “inflow of wood” and (i) “price of electricity generated from woody biomass” in Scenario B. In the original condition of Scenario B, the inflow of wood (annual amount of collected wood) for electricity generation is 148 thousand ton/year (wood residue: 58 thousand ton/year, domestic virgin timber: 90 thousand ton/year) and the price of electricity generated from woody biomass is 25.2 JPY/kWh (wood residue) or 33.6 JPY/kWh (domestic virgin timber). The result indicates that, if we assume that the current FIT scheme is maintained in the upcoming 20 years (i.e., the price of electricity from woody biomass is the same as Scenario B), it is required to collect more than about 40 % of inflow wood for electricity generation (74 thousand ton/year of wood, consisting of 29 thousand ton/year of wood residue and 45 thousand ton/year of domestic virgin timber) to ensure economic feasibility. The business will be economically unfeasible if the current FIT scheme is amended and the price of the electricity produced from woody biomass drops to below 50% of that in Scenario B.

Figure 5. Sensitivity analysis in Scenario B when increasing each parameter by 10%

Figure 6. Economically marginal condition of the biomass energy business

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5. Discussions The result of the case study showed that critical factors of driving the business include (g) “the amount of inflow wood” and (i) “the price of electricity from woody biomass” (see Figure 5). For the biomass business providers, Factor (i) is an external variable since it depends on the FIT scheme, which is a part of the Japan’s national energy policies. Figure 6 pointed out that the business becomes economically unfeasible if the price of the electricity produced from woody biomass decreases to below 50% of the price as of 2013. Regarding Factor (g), the biomass business providers need to collect more than 74 thousand ton/year of wood for electricity generation. In particular, domestic virgin timber should be collected of higher priority because the price of the electricity generated from virgin timber (33.6 JPY/kWh) is higher than that from wood residue (25.2 JPY/kWh). One promising measure for increasing the amount of collected domestic virgin timber is to incentivize domestic wood producers by paying more procurement cost (see Factor (g) in Figure 2). Figure 7 describes the influence of wood procurement cost on the annual profit when the annual amount of collected domestic virgin timber for electricity generation is fixed at 90 thousand ton/year. While the wood procurement cost in Scenario B is 4.0 JPY/kg (see Table 2), the marginal wood procurement cost is 15.8 JPY/kg to keep the business profitable.

Figure 7. Influence of wood procurement cost on the annual profit

In this way, the proposed method is useful for identifying key driving and inhibiting factors, which helps business providers come up with possible actions for realizing an economically sustainable business. We believe that the 5-step procedures for conducting scenario analysis, which are shown in Section 3.1, are applicable to other renewable energy businesses for clarifying conditions for sustainable energy businesses, if necessary data is available. The method and the case study regarding the design of renewable energy businesses, which were demonstrated in this paper, would contribute to expanding a new academic field in design for sustainability. However, in order to design sustainable renewable energy businesses in a holistic way, it is needed to combine quantitative analysis and narrative stories because not all the factors of the businesses can be quantified in our model. For example, there are many possible ways to increase the annual amount of collected domestic virgin timbers other than paying additional wood procurement cost. These include indirect and delayed factors, such as developing forest roads to carry wood more efficiently and teaching forest management skills especially to younger generations. Describing such narrative scenarios based on quantitative analysis using the simulation model developed in the paper is one of our future issues.

6. Conclusions Toward designing sustainable energy businesses, we proposed a method for modeling renewable energy businesses based on the concept of life cycle simulation (LCS). The case study of the woody biomass energy business in Maniwa City revealed that the energy business using wood residues and domestic virgin timbers becomes economically feasible if the current FIT scheme is maintained and an abundant amount of wood is collected for producing wood pellet and electricity. In addition, the usage

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of wood residues for producing wood pellet and electricity results in reducing the disposal cost compared to directly landfill them. Future issues include collecting more data for improving the accuracy of the evaluation results.

Acknowledgement The authors are grateful to Maniwa City for providing indispensable dataset to carry out the case study described in the paper.

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